Question

Using a diagram, explain the concept of:

Break-even point of a firm in perfect competition under short run.

Answer 1

The break-even point of a firm in perfect competition in the short run refers to the point at which total revenue equals total cost, or AR = AC. At this point, the firm can cover all its costs. It is a no-profit, no-loss situation. It can be shown in the diagram as follows:

Point K, where the SMC curve cuts the minimum point of SAC, is known as the break-even point because the firm just covers its cost, i.e., AR = AC.